US Election – What does it mean for my portfolio?
As I write this, I watch Donald Trump addressing his supporters with a speech to celebrate what has for the most part seemed a very unlikely victory at the US general election.
In a similar vein to our recent experiences in the UK with the Brexit vote, the public have once again confounded the predictions of the pollsters, media and so called experts.
In the case of the Brexit vote, our commitment to the core principles of our investment philosophy have been rewarded with strong performance so far.
Holding a globally diversified portfolio spread the risk of exposure to one specific segment of the global equity market. In addition, the devaluation of Sterling was good news for our portfolios which were diversified amongst global markets and currencies. Finally, nervous investors moved from equities into asset classes which are traditionally considered to be safer such as the high quality fixed interest securities held in our portfolios.
Will it be the same this time? Almost certainly not. The honest answer is we don’t know what the short term impact of the election result will have, and from experience we know that nobody really does. We know that emotions drive market behaviour in the short term and economic and market fundamentals drive it in the long term. I am pleased to say that our clients are long term investors rather than short term speculators and we can draw a lot of comfort from that.
Helping our clients manage the risk their own behaviour may pose to their portfolio is an important part of our role as personal finance directors. The key message from this post will not come as a surprise to those who know us well but it is only human nature to seek reassurance.
To borrow from my post on the eve of the Brexit vote, despite all of the perceived uncertainty we may feel today, there are a few things we can predict in the coming days:
- We are going to be bombarded by the media. ‘Experts’ will continue to make predictions on what will happen in the future with regard to the economy and investment markets. Some will be right and some will be wrong.
- People will continue to correlate short term economic performance with that of investment markets. They will be proven to be wrong.
- Markets will go up and down during the run-up to the vote and afterwards.
- Those who have taken time at the outset to pick the right portfolio to match their financial plan will be as well placed now as ever.
- A highly diversified portfolio will prove to be the best method of managing short term volatility such as that which may be caused by the vote.
- Lowest costs will continue to be one of the best predictors of who will finish top of the pile in the long run.
- Time in the market will prove to be more successful in the long term than timing the market.
- Investors behaviour will be a much bigger threat to their own portfolios than the short term fluctuations caused by this vote.
Again it is ‘as you were’ at BDB (I may take a break from Radio 4 in the morning for a while). We aren’t worried and we don’t think our clients should be either.
For those who need reassurance I hope that this note offers some comfort but as ever we are here to talk about it if you need us.